Following the ongoing recession, the latest European Economic Outlook from KPMG signals a moderate recovery for the German economy in 2026, with real gross domestic product (GDP) expected to grow by 1.1% – the first noticeable upturn in four years.
This year, it is likely to stagnate and “increase only minimally by 0.1%.”
Despite this positive trend, Germany still reportedly remains in the middle of the pack in a European comparison: according to the European Economic Outlook, the recovery will be “slower than in many other European economies and will continue to be held back by structural challenges at the location, a reluctance to invest and external uncertainties, for example in international trade.”
Overall, Europe is heading for subdued “economic growth in the short term: the tense global economic situation is weighing on both corporate investment and consumer behavior.”
For the eurozone, the European Economic Outlook “expects GDP to increase by around 0.9% in 2025 and 1.1% in 2026.”
The overall weak growth masks “significant differences” within Europe.
Southern and Eastern European economies such as Spain and Poland are currently developing dynamically – driven “by strong domestic demand, targeted investments and stable labor markets.”
In contrast, other established industrialized countries “such as Germany and France continue to be confronted with structural locational disadvantages.”
A trade agreement with the USA could slightly “increase economic growth in the EU in 2026 – but only by up to 0.1%.”
However, not much more is “to be expected.”
This is because a return to “largely tariff-free trade is considered unrealistic.”
In addition, uncertainty about the “outcome of the negotiations and possible concessions are curbing the willingness to invest.”
As noted in the update, an alternative negative scenario with “higher general customs tariffs would particularly affect small, open and highly export-oriented economies such as Ireland, Switzerland and Germany.”
Here, the KPMG update concluded that GDP losses could be “as high as 1.4 percent.”
